Tesco Plc v Commissioners for Customs and Excise Rev 1

A right to receive goods or services for an amount stated on a voucher falls within paragraph 5 of Schedule 6 to the Value Added Tax Act 1994 only when that right is granted for consideration. Loyalty points do not satisfy this requirement where their conversion into vouchers depends on future contingencies and particular points cannot be linked to particular vouchers.

The scheme must be examined objectively as a complete cycle of transactions, with regard to its legal effect and economic purpose. Customers’ subjective perceptions are immaterial. In any event, points awarded on purchases at the full shelf price are earned without separate consideration. Payments by participating third parties are for promotional participation and services, unless directly linked to the supply of the points or vouchers.

Tesco operated a Clubcard loyalty scheme under which members earned points when purchasing goods. Subject to minimum and continuing-membership conditions, accumulated points were later converted into vouchers redeemable against future purchases. Variants involved third-party retailers, Tesco Personal Finance and supplier-funded promotions.

The Value Added Tax and Duties Tribunal held that vouchers under the basic and certain third-party schemes were granted for consideration within paragraph 5 of Schedule 6 to the Value Added Tax Act 1994. Ferris J reversed the favourable parts of that decision and upheld the Commissioners’ position: [2002] STC 1332.

The central question on Tesco’s statutory appeal was whether the rights represented by Clubcard vouchers were granted for consideration in the autonomous Community law sense, so that paragraph 5 required the consideration to be disregarded when valuing the earlier supplies.

1. Appeal dismissed unanimously. The Clubcard vouchers did not fall within paragraph 5 of Schedule 6 to the Value Added Tax Act 1994. Jonathan Parker LJ delivered the judgment, with which Latham and Schiemann LJJ agreed.

2. The application of paragraph 5 depended on Community law applied to undisputed primary facts. The Tribunal’s conclusions about an ordinary customer’s perceptions were inferences rather than primary findings. The appellate courts could therefore substitute the conclusion required by the relevant law.

3. The correct analysis was objective. The court had to examine the entire cycle of transactions, the terms agreed, the scheme’s legal effect and its economic purpose. Subjective intentions or beliefs were relevant only so far as reflected in the scheme. The Tribunal erred by treating its assessment of what an ordinary Clubcard member thought he was buying as determinative.

4. Paragraph 5 requires the right to receive goods or services for the amount stated on a voucher to have been granted for consideration. It is not enough that points were arguably obtained for consideration. Conversion was not automatic: the scheme imposed a minimum points threshold and permitted removal of inactive members. Particular points could not be linked with particular vouchers or with specific consideration. The issue of a voucher was a later and distinct stage. This conclusion was fatal to the appeal.

5. Alternatively, even if points and vouchers were equated, no separate consideration was provided under the basic scheme. Members paid the same full shelf price as non-members, while the scheme documentation presented points as freely earned. Its economic purpose was to encourage loyalty by permitting future purchases on preferential terms.

6. Payments made by third-party retailers, Tesco Personal Finance or suppliers funded participation in a promotional scheme and related services. They were not consideration for vouchers supplied to customers, and lacked the necessary direct link with those vouchers. The High Court order dismissing Tesco’s appeal and allowing the Commissioners’ cross-appeal therefore stood.

1. Court of Appeal (Civil Division): Tesco’s appeal was dismissed unanimously by [2003] EWCA Civ 1367, leaving the High Court’s order in force.
2. High Court, Chancery Division: Ferris J dismissed Tesco’s appeal and allowed the Commissioners’ cross-appeal, holding that none of the vouchers was issued for consideration within paragraph 5 of Schedule 6 to the Value Added Tax Act 1994: [2002] STC 1332.
3. Value Added Tax and Duties Tribunal: The Tribunal allowed Tesco’s appeal in relation to the basic scheme and certain third-party schemes, but found for the Commissioners in relation to the remaining variants.